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Guidance on Tax Treatment of Travel Expenses

In a ruling which revealed that workers’ entitlement to set off travel expenses against income tax may well depend on the type of contract under which they are employed, an itinerant power station worker failed to convince the First-Tier Tribunal that his interpretation of the law was to be preferred to that of the tax authorities.

Tcar park no entryhe worker, who was engaged in the shutdown of power stations across the country, drove more than 20,000 miles in a single tax year between his various places of work. He sought to set off £6,730 in mileage costs against tax, but Her Majesty’s Revenue and Customs (HMRC) insisted he was only entitled to deduct £2,241.

He carried out his work under two different types of temporary contract: Short-term contracts, whereby his employer would direct him to work at a particular power station for a specified period, and retainer contracts, which entitled his employer to send him on various job postings during the currency of the agreement.

HMRC took the view that travel expenses incurred under the retainer contracts were tax deductible but those incurred under the short-term contracts were not. That was on the basis that, when working under retainer contracts, his workplaces were temporary, whereas, under the short-term contracts, they were permanent.

On appeal to the tribunal, the worker pointed out that he performed the same role under both forms of contract and argued that there was no logical justification for allowing deduction of travel expenses in respect of one of them but not the other.

However, in dismissing his appeal, the tribunal ruled that HMRC had been correct to treat each temporary contract as a separate contract of employment. The crucial difference between the two forms of contract was that the short-term contracts required the worker to report to a particular power station, whereas the retainer contracts did not.

Whilst acknowledging that the type of work performed under each type of contract was in essence the same, the tribunal concluded: “This is a case where the contractual provisions in each type of contract determine the tax treatment as a matter of tax law”.